Just two months ago, local cider, beer, mineral water and confectionery products departed from a cargo terminal in Łódź and set out for the world’s largest market, China. In launching its “One belt, one road” strategy China intends to conquer European markets more comprehensively. Poland just happens to be on the Chinese path to expansion
By Alicja Ciszewska
In 2013, China’s authorities came up with the idea of establishing a new infrastructural project dubbed “One belt, one road” (or “New Silk Road” in reference to the Silk Road) in line with which, among others a web of cargo routes connecting Asia and Europe will be made. This new strategy is crucial in the continuation of the Chinese economy’s growth, “today, a conversation in Beijing is beginning on the topic of the New Silk Road,” Sławomir Majman, the president at Polish Information and Foreign Investment Agency (PAIiIZ) stressed. Central and Eastern Europe is considered by Chinese geo-political analytics as a sort of “introduction to the European Union, an area of political and economic influence,” Marcin Kaczmarski, an expert at the Center of Eastern Studies said. Poland is located in the center of Europe and is the largest economy in the CEE region, neighboring with the engine of the EU, Germany. Which means the Chinese have chosen Poland from a strategic point of view. “It would be difficult to implement this project without Poland, which is a great location for the Chinese, a door to the European market,” Radosław Pyffel, the president of the Poland-Asia Research Center admitted. Only 3.5 percent of the total exports from China to Europe are carried over land, despite the fact that it is three times quicker than by sea. A network of rail connections is an essential element of the Chinese project, because the government is convinced that transportation by train will be more attractive for traders than via ships and speed will compensate for higher costs. “Railway transport is significantly faster, yet more expensive than by sea. According to our analysis, the price of the transportation of one container from Europe to China accounts for 30-40 percent of the value of the transported goods. And this is the main drawback for this kind of transportation,” Szymon Mikołajczak, the member of the board of managers at Carsped, a subsidiary of PKP Cargo, explained on promare.pl web portal.
Łódź takes it all
Łódzkie voivodship has been attempting to attract Chinese businesses for a while. Łódź came up with the idea of establishing a regional Poland-China forum after former president Bronisław Komorowski paid a visit to Beijing in 2011, when a mutual strategic partnership was forged. Since then, three editions of the event have taken place, uniting the representatives of local authorities and businessmen from all over the two countries. Furthermore, there have been several business and political missions to China, undertaken by local authorities. Barbara Ochcika, a specialist in the field of logistics from the University of Łódź, claimed that the region’s location, convenient access to rail and road infrastructure, the prospect of developing multimodal connections and growing warehouse space are “the pillars of its logistics potential.” In 2012, the city of Łódź opened its office in Chengdu, Sichuan province. Chengdu is a city of 14 million and the capital of the Sichuan province, it plays a role in the logistics, financial and technological centers of the western part of the country. The city specializes in wood and the electro-tech industry. The turning point in relations between Chengdu and Łódź was in launching the first ever, China-Poland cargo connection in April 2013. Each cargo train holds 41 containers and travels through Belarus, Kazakhstan and Russia for 14 days before it reaches the terminal in Chengdu. The first “export train” left Łódź on August 17 this year, the second departed from Łódź, Olechów terminal nine days later heading to Xiamen. Xiamen is a major city on the southeastern Chinese coast, its population stands at over 3.5 million. The journey from Łódź to the city lasts a bit longer than to Chengdu, but it is quicker to pass through customs clearance because the city is in a sub-district of the Fujian Free Trade Zone. The trains to Chengdu and Xiamen will operate every week, thus 25 more convoys will have departed from the terminal in Olechów by the end of the year, according to Grzelak. Monika Konsor-Fąferek, marketing and development manager at PCC Intermodal, was slightly less enthusiastic, “taking into account current freight rates, the Chinese are focused on sales, they attach less importance to importing via railways, which would be the jewel in Europe’s crown.”
The Chinese would like to play a considerable part in the transformation of the Polish city, Xiamen would be a good introduction from which to expand to the other parts of the region. “We express our eagerness to create a common logistics platform with Łódź , which would service the transportation of goods from Europe to South-East Asia, including China and Taiwan,” said Zheng Yunfeng, the deputy mayor of Xiamen. A continuation of Chinese involvement in the region is a plan to construct a second cargo terminal somewhere in Łódź. A similar terminal, valued at a few hundred million USD, has been operating in Chengdu. The Polish city aspires to achieve the same capacity. A joint venture has already been established, comprising Chinese and Polish companies enlisted to develop the project. There are more than two and less than five locations on the table, Grzelak said, adding that the choice will most likely be finalized in October. Witold Stępień, the marshal of the voivodship informed that the scheme is expected to be completed within three years, “the draft is ready and the investors have funds at their disposal,” Grzelak asserted, and Ochcicka suggested possible EU financing may be involved in the investment.
Milk shopping spree
Since the spring of 2013, 70,000 metric tons of goods including household appliances, electronics and textiles have been exported from China to Poland (with 20 percent of goods being exported further to other European countries) via the rail link, its operator, Hatrans Logistics estimated. In 2013, China was Poland’s third largest trade partner as concerns exports, a year later it had advanced up to second spot. Two years ago, China accounted for 9.3 percent of total Polish imports, last year, the share reached 10.4 percent. When it comes to exports, China is not listed in the top ten recipients of Polish goods (GUS). The share of Poland’s exports stands between 1-3 percent of China’s total imports. Undoubtedly, the cargo connection has influenced the mutual exchange negatively from Poland’s standpoint and widened the trade deficit. It took over two years for the containers to be filled with Polish products. Some media reports suggested that Polish companies would require subsidiaries from the government (like their Chinese counterparts), but these demands are against WTO regulations, Bartosz Michalak, the president at the Polish-Chinese Cooperation Forum stressed. Apparently, the problem lies elsewhere, “it was really hard to organize the cargo, and Polish companies had to meet strict Chinese requirements,” Tomasz Grzelak, the CEO at Hatrans Logistics admitted. It has to be noted, that it is currently prohibited to import certain goods to the Chinese market, e.g. pork (trade with Poland is suspended, however ten Polish firms have been certified) and beef (governmental talks are ongoing). The other issue is the Russian embargo imposed on numerous products from the EU, that is why Polish fruit and dairy cannot be transported via the rail link. Grzelak stated that his company along with Chinese partners have been negotiating with Russia in the hope of establishing a system which will allow the Russians to examine the train to ensure it is adequately secured. Grzelak believes that the Chinese will have some political influence over Russia, that is one of the reasons why the Chinese delegation to Łódź was so sizeable on the days of the trains’ departure.
Polish producers believe that exporting domestic liquors and dairy products, including milk is the appropriate strategy with which to enter the Chinese market and gradually begin to make inroads. Train transportation is suitable for small cargos consisting of products with a limited shelf life. Polish milk and powdered milk have been highly successful with Chinese consumers and exporters agreed. “The Chinese are very interested in our products, especially dairy,” Michał Brzeziński, Deputy Head of Promotion and International Cooperation Unit of Łódź regional Development Agency. Łowickie, Mlekovita and other brands are available in supermarkets in Shanghai, there is this huge enthusiasm for Polish milk in China, Grzegorz Marciniak, managing partner at VMIX consultancy, pointed out. The Chinese prefer Polish milk to Chinese, because they find it healthier and safer, Pyffel said, adding that Chinese customers remain wary about domestic dairy products after the milk scandal that shocked the public in 2008 in which 300,000 childrn were taken ill due to contaminated milk powder. Exporters who sent their products via the rail connection operated by Hatrans have high hopes regarding their presence on the Chinese market, one of them, Andrzej Pawelec, the owner at Chociszew-based +H20, a cider producer, said the Chinese liked our alcohol very much. They conducted research and they chose what they wanted in China. Another liquor producer, Sulimar from Piotrków Trybunalski shares the same hopes for a fruitful cooperation with the Chinese. “Talks were very long, but our samples were evaluated very well. We think that this is just the beginning of our mutual trade exchange,” said Grzegorz Szafran, the CEO at Sulimar, which sent Cornelius and Trybunał Eksport beers to Xiamen. Pawelec also believes that Poland should start selling vodka to China.
Besides Hatrans, there is another player on the scene looking to take advantage of China’s new international infrastructure. State-controlled PKP Cargo is responsible for the operation of the European section of the connection with China, i.e. Poland-Germany. Since October 2013, trains from Suzhou, Jiangsu province have been arriving into Warsaw. Transportation services were organized by PKP Cargo Logistics. The ultimate goal is to establish a daily connection, which the company hopes to implement next year. Hatrans seems to be ahead of its competitor, because PKP Cargo is still in talks with potential firms who would be interested in transporting their products to China via the connection. In June, PKP Cargo signed a letter of intent to establish a joint venture with Zhengzhou International Hub (ZIH) from Henan province in China. The parties will cooperate to expand a handling terminal near the Polish border with Belarus, in Małaszewicze. Chinese Zhengzhou International Hub will own a 51 percent stake in the project. The company was to be established within three months, however, according to its press office, “talks are still ongoing.” ZIH seeks to find new markets for goods manufactured in Henan and Poland is to be crucial in expanding access to Germany, where cargo will be handled before exporting it further west. Barbara Dunaszewska, President of the Management Board of Cargosped, informed that PKP Cargo is currently servicing three trains a week arriving from Henan province. Furthermore, it has signed additional contracts that will enable the railway company to provide comprehensive intermodal rail freight services from China to Europe for seven trains a week with the prospect of extending it to 10 trains a week (from Henan, Sichuan and Yunnan provinces). “The new connections will form a link not only between Poland and China (through our logistic depot in Malaszewicze near the Poland-Belarus border) but also leading to Germany and the Netherlands,” she stressed. The company is also holding talks on providing postal services to and from Asia, with state-controlled Poczta Polska. Furthermore, they plan to incorporate a specialized distribution center for e-commerce shipments into the Malaszewicze terminal and Zhengzhou International Hub is currently working on a similar terminal in Henan province. During the first stage of their mutual cooperation they will invest $5 million combined, according to Adam Purwin, the CEO of PKP Cargo.
It is easy to condemn the entire project, to question why Poland is trying to conquer China with such cheap and unsophisticated products. One needs to realize that, firstly, every cargo has limited capacity, secondly, it is hard to impress the world’s largest producer of almost everything. Moreover, China is not lacking in electronics, it needs high quality food. Hopefully, it will soon get it if Hatrans Logistics and its Chinese partners can reach a consensus with Russia. In addition, the construction of the multimodal terminal is definitely worth observing, because the Chinese may eventually spend millions on greenfield investment in Poland.